Low Rates Unfazed by a Bit of Market Weakness

Mortgage rates held their ground fairly well today, despite the fact that underlying bond markets were weaker.  Bond market weakness is associated with higher interest rates, all other things being equal.  To understand this, consider that a bond is essentially a loan.  An investor who buys a bond is buying the right to collect interest payments on a loan.  That investor is effectively “the lender.”  Ideally, those investors would compete with one another for the right to collect interest on loans.  If bonds are “weaker,” it means those investors don’t see as much value in buying those loans.  The price they pay to obtain the loan goes down (aka “weakness”).  In turn, the loan’s rate of return needs to be bumped up in order to attract investors.  And “bumping up the rate of return on a loan” is tantamount to “higher rates.”…(read more)Forward this article via email:  Send a copy of this story to someone you know that may want to read it.
Source: mortgagenewsdaily.comNew feed